Australia: Carbon Farming Initiative gives boost to bioenergy development

Bioenergy generates approximately 1 per cent of Australia's electricity per year. This compares to around 11% of the world's total energy coming from bioenergy.

The introduction of the Carbon Farming Initiative (CFI) may boost bioenergy development in Australia, particularly in the waste-to-energy sector.

The Australian waste sector produces around 15 million tonnes of carbon pollution annually, equivalent to 3 per cent of the country's total emissions. Industry groups have welcomed the CFI and hope it will encourage the uptake of waste-to-energy technology in Australia. Globally, the waste-to-energy technology market is predicted to grow exponentially over the coming decade from $6.2 billion in 2012 to $29.2 billion by 2022.

The CFI was introduced in December 2011 as part of the Federal government's Clean Energy Future package. It is a voluntary scheme that allows farmers and other land managers to earn carbon credits, known as Australian Carbon Credit Units (ACCUs), through certain activities.

There are two types of ACCUs: Kyoto ACCUs and non-Kyoto ACCUs. Kyoto ACCUs can be used by liable entities to satisfy up to 5% of their obligations under the Carbon Pricing Mechanism during the fixed price period (1 July 2012 to 30 June 2015), and without restrictions thereafter. They may also be sold onto the international carbon markets and will contribute to Australia's emissions target under the Kyoto Protocol (or any international agreement which succeeds it). The value of Kyoto ACCUs will depend on how much liable entities are willing to pay. They are unlikely to pay more for Kyoto ACCUs than the price of a carbon permit (i.e. $23 per tonne of CO2-e for the first year, rising by 2.5% in real terms each year, and above $15 during the flexible price period).

Non-Kyoto ACCUs cannot be used by liable entities under the CPM, and will not count towards Australia's international emissions target. However, they can be traded on voluntary carbon markets. The Government will purchase non-Kyoto ACCUs, to incentivise abatement through projects such as soil carbon and revegetation.

ACCUs can be generated by undertaking approved activities, which either reduce greenhouse gas emissions on the land, or sequester carbon. Each CFI project must use an approved methodology, which will contain detailed rules for implementing and monitoring specific abatement activities under the scheme. Four methodologies have so far been endorsed by the Domestic Offsets Integrity Committee (DOIC):¹

• capture and combustion of landfill gas (attributable to "legacy waste", being waste accepted to a facility before 1 July 2012);
• destruction of methane generated from manure in piggeries;
• environmental plantings; and
• savanna burning.

The first two could have a positive impact on bioenergy projects.

Activities utilising the first methodology earn carbon credits by capturing methane emissions to produce electricity for sale to the grid or to destroy it through flaring. The abatement activity consists of:

• installing a gas collection system;
• capturing the landfill gas; and
• combustion of the methane component of the landfill gas using flares and/or an electricity generation system to convert it to carbon dioxide, which is released to the atmosphere.

Those who convert methane to carbon dioxide by generating electricity may also earn revenue from the sale of large-scale generation certificates (LGCs) under the Federal Government's Renewable Energy Target (RET) scheme.

Similarly, projects involving manure management to reduce methane emissions from manure in piggeries can also earn ACCUs under the CFI. Those which convert the methane into carbon dioxide by generating electricity could also earn credits under the RET (although it is unlikely that the amounts of electricity generated from such a project would qualify for LGCs). It is anticipated this methodology will be adapted for use across a range of intensive livestock industries, not just piggeries.

While the CFI has potential to boost the bioenergy industry, there are significant hurdles. In particular, the "additionality test" poses an obstacle for some landfill projects. The additionality test provides that a project cannot participate in the CFI if it is required to be carried out by or under a Commonwealth, State or Territory law. Many landfill operators already have restrictions on the amount of methane they can produce as part of their permit or license conditions. This means their current methane management systems would fail the additionality test rendering them ineligible to receive ACCUs for their emissions reductions activities.

A slight disappointment to the industry came when the Federal Government passed the Carbon Credits (Carbon Farming Initiative) Amendment Regulation 2012 (No.1). The regulations confirmed that the NSW Greenhouse Gas Abatement Scheme (GGAS) will not be recognised under the CFI. It was hoped that any unused abatement certificates could be swapped for ACCUs when GCAS closed on 1 July 2012. Many companies operating GGAS landfill gas capture projects are currently sitting on large numbers of unused certificates and will be among those most affected by this restriction.

On the bright side, companies that are required to offset their emissions as a condition of their state government approval, and which are also liable under the CPM, can create ACCUs from their offsetting activities. This will mostly benefit large resource projects which otherwise would have to pay to both offset their emissions under state law (for example, through purchasing carbon credits on the international market) and then also pay the Federal government's carbon price. An exemption from the additionality test has been introduced for these circumstances to deter concerns regarding "double counting".

One effect of this provision may be to encourage resources companies to invest in CFI projects, as they may find it more cost effective to actually generate ACCUs, rather than simply purchase credits on market. This in turn will create a higher demand for CFI projects.

As things stand, the Clean Energy Regulator's first quarterly report shows that no ACCUs have been issued since the CFI started in December 2011 and the Register of Offset Projects does not yet list any project activities. However, it is anticipated that participation in the scheme will increase in the coming year.

Click here to read an article on Development of Bio-energy Projects in Asia published in the Journal of Renewable Energy Law and Policy.

Footnotes

¹ Methodologies endorsed by the DOIC must be promulgated as 'methodology determinations' by the Minister for Climate Change and Energy Efficiency, before project applications to implement them can be approved. The environmental plantings methodology was recently promulgated as a determination. It is anticipated that the other three methodologies will also be promulgated shortly. More information on approved methodologies can be found here.

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